The IRS can have a long memory when it comes to rulings and decisions against taxpayers. Even with the seemingly all-purpose economic substance doctrine in its utility belt, the IRS sometimes dusts off old precedents to attack transactions. Revenue Ruling 80-239, 1980-2 C.B. 103, and Basic, Inc. v. United States, 549 F.2d 740 (Ct. Cl. 1977) are two anti-taxpayer authorities that targeted perceived abuses that are now largely obsolete. Nevertheless, the IRS may still invoke these precedents for support in totally different situations. Taxpayers should be aware of how the IRS might use [...]Read more
The IRS recently released the letter ruling (PLR 201503010) that was likely issued to Iron Mountain, a US multinational document storage company, on its conversion to a REIT. The taxpayer in the ruling proposed retaining its leases and ownership interests in warehouse-like buildings and racking structures therein in the corporation that would elect REIT status and moving its document storage activities into taxable REIT subsidiaries.
The letter ruling contained more than a dozen separate rulings, evincing the complexity of transitioning from a C corporation to a REIT, particularly when [...]Read more
The Federal Tax Group explores factors in the revived interest in the C corporation, including the potential reduction in the corporate tax rate, reduced pressure to distribute earnings and cash flow savings.
In the wake of the DOMA decision, this advisory discusses another recent Supreme Court ruling that dealt with the tax connection of the procedural issue of constitutional defenses to government action. In Horne v. Department of Agriculture, 2013 U.S. LEXIS 4357 (2013), the Court ruled that California raisin farmers did not have to pay to the Agriculture Department (USDA) an amount that an administrative law judge had ordered them to pay, and then sue for refund in the Tax Court. Rather, they could appeal the order and have their Fifth Amendment-taking claim considered, at least in the court appeal [...]Read more
LTR 201314002 has caused quite a buzz in the investment community. Stock pickers want to know how far the envelope can be pushed on the definition of a real estate investment trust. The ruling seemed to allow it to be pushed fairly far, to include racks in buildings where computer servers are stored, called data centers. However, two companies in somewhat similar businesses recently filed information with the SEC indicating that the IRS was closely examining whether their real estate should receive REIT treatment.
A domestic consolidated group headed by a parent is now in the business of [...]Read more
This advisory discusses United States v. Gary Woods, 471 Fed. Appx. 320 (5th Cir. 2012), affirming per curiam, 794 F. Supp. 2d 714 (WD Tex. 2011), which will be reviewed by the Supreme Court under its writ of certiorari issued at the request of the United States on March 25, 2013.
On Feb. 11, 2013, a regular Tax Court opinion was issued in a case that the opinion said was of first impression, ruling against Bank of New York Mellon (BNY). 140 T.C. No. 2. BNY had engaged in a cross-border transaction called STARS that KPMG created around 2000 in cooperation with the foreign bank Barclays. Barclays desired to obtain UK tax credits and deductions that required making an investment in a UK trust in conjunction with investments by a U.S. bank. The benefit for the U.S. bank was to be receipt as a loan of Barclays’ investment of $1.5 billion in the trust, with a very reduced [...]Read more
In the late 20th century, the IRS made a combination of unrelated decisions resulting in a proliferation of upstream C reorganizations. This advisory discusses how the ease with which an upstream C reorganization can occur can cause problems.
LPCiminelli Interests, Inc. v. United States, 110 AFTR 2d 2012-6631 (W.D. N.Y. 2012) ruled that a consolidated group did not have to amend its returns to assert that a subsidiary became worthless before the year the IRS claimed it was worthless. This ruling confirms the general rule that taxpayers have no obligation to amend a previously filed return. It also illustrates the pitfalls of dealing with broken subsidiaries, and the wisdom of sometimes doing nothing.
Facts. The common parent of the group owned a subsidiary that went out of business several years before the 2004 year for which the IRS [...]Read more
All global banks currently being audited by the IRS, which have engaged in cross-border withholding planning for clients, should take careful notice of AM 2012-009.
This GLAM explains to IRS LB&I how to assess foreign affiliates of domestic banks that did not withhold tax on foreign stock borrowing and back-to-back swaps, in reliance on Notice 97-66. The basic advice is to assert the economic substance doctrine. Fortunately, the advice applies only to transactions prior to the partial codification of the doctrine in 2010, which happened to coincide with legislation fixing the Notice 97-66 [...]Read more